The case against reforms

Published Feb 10, 2013 12:30am

REFORM or sink. That’s the message the outside powers are trying to impress on Pakistan’s civilian political leaders ahead of the next election cycle.

The thinking is fairly straightforward: Pakistan’s macroeconomic outlook is dismal and unless some fundamental reforms are undertaken soon, the country will be trapped in a low-growth, high-insecurity cycle for a generation or beyond.

The desired reforms?

Improve the tax-to-GDP ratio — more revenue is essential if the country is to be pulled out of the disastrous spiral of high borrowing and high expenditure.

Fix the power sector — growth is being choked by the desperate shortage of electricity and the state’s finances will collapse under the weight of hundreds of billions of rupees being shelled out annually to prop up a broken electricity sector.

Curtail borrowing from the domestic market — the banks are having such an easy time lending to the government that they’re ignoring the private sector; without private investment picking up, the medium-term trajectory of the economy can only be down, down, down.

Why press for reforms now?

Again, the thinking is fairly straightforward: whoever comes to power after the election, the government — weak or strong — will have some political capital to spend at the very beginning and so a small window of opportunity to push through reforms that six months or a year later will become politically untenable.

The message and the logic are both impeccable: Pakistan desperately needs economic reforms and the warm glow of a fresh mandate from the electorate will give the government a chance to push through unpopular reforms.

Here’s the problem: it won’t happen.

Start with the PPP. Let’s assume the party leads it’s unwieldy coalition back to power. What next?

The single most terrifying thing about the PPP? Party leaders genuinely believe Asif Zardari is some kind of economic wizard.

Waxing lyrical about your leaders is one of those squeamish necessities of politics here. But it becomes something else when that hype is internalised.

From leading the country through a perilous international financial crisis and recession to navigating the pitfalls of domestic special interests and markets, the PPP sells Zardari as a Nobel Prize-winning economist or the second coming of Nassim Nicolas Taleb.

If you’ve already got a hero in your midst, why would you need to reinvent yourself?

The PPP won’t do it, push through desperately needed but painful reforms, that is.

Turn to the PML-N. On paper, the N-League has a better economic team than the PPP — how could it not when compared to zero?

But scratch the surface and the same superficiality and misplaced confidence is evident: fixing Pakistan is just about a few steps — and please, don’t talk about taxing traders as one of those steps — that are primarily about management, not reforms.

For the PML-N there is no trade-off between better economic management and political exigencies — though the two are of course fundamentally interconnected.

The PTI? It talks a good reforms talk but it has yet to walk the reforms walk — and the same electables that maybe, perhaps, who knows will catapult the PTI to power or junior-coalition-partner status will be answerable to the same electorate that Asif Zardari and Nawaz Sharif are answerable to.

And therein lies the basic problem: seen from the outside, through rational, reasonable and sensible eyes, the political mainstream in Pakistan is irrational, unreasonable and insensible.

A little pain now and the long-term benefits would be enormous. Improving the tax base would mean more money to spend on public services. Fixing the power sector would mean more jobs through small and big business flourishing. Curtailing borrowing would help put the brakes on inflationary pressures, essentially a tax on the people.

A rising tide lifts all boats — to use a terrible cliché — the outside powers are essentially arguing.

But Pakistani politics is about individual boats — about a personalised, patronage-driven style of politics that often works at cross purposes to the common good.

The most offensive thing you can say to a Pakistani politician is that they don’t do enough for their voters.

As far as they’re concerned, they do. They go to weddings and funerals, they get the kids into school, they get the young adults jobs, and they keep the delinquents out of jail.

They transfer money to the family patriarch when the family land is flooded or destroyed and to the matriarch when the economic going gets really tough.

They work, and they work damn hard, thank you very much, the politicians know and believe.

Of course, there are the subjective wishes of the electorate and then there is objective reality: ignore the macro for the micro, the collective for the individual, long enough and wantonly enough, and reality will eventually bite.

But when will reality bite, savagely and life-threateningly, not the death by a thousand cuts we’re currently suffering?

Because reforms won’t come unless there is absolutely no alternative.

Raise the tax base? Not unless the federal government can’t pay its dues: debt obligations, salaries of a bloated bureaucracy and the expensive toys for the spoilt boys.

Best guess: that’s another three to four years off.

Fix the electricity sector? Not unless it actually, definitively collapses, say, with the default of Pakistan State Oil, the lynchpin of the power sector and most connected to the global markets.

Best guess: that’s another year or two away.

Stop borrowing from the local banks? Not unless a massive inflationary spiral is triggered or the banks’ lopsided balance sheets threaten unmanageable risk.

Best guess: that’s several years away from happening.

No unavoidable agony, no immediate desperation, no imminent collapse — no reform. Not by the politicians.

No matter what anyone else wants or says.

The writer is a member of staff.

cyril.a@gmail.com Twitter: @cyalm

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Comments (16) (Closed)


Sydney
Feb 10, 2013 09:14am
So no hope. People with democratic credentials are not capable of delivering.
Sri1
Feb 10, 2013 08:11am
Beautifully written last lines. Imminent collapse and unmanageable popular fury is the only mover for political leaders. This is not only true for Pakistan, it is equally true for ultra-complacent Indian leaders. Democracy is the only difference, that is slowly pushing Indian leaders. One place where Pak scroes big is - a very vigorous, expressive, substantive media not as beholden to special interests as in India. If this media (bothUrdu and English) can be persuaded to keep awareness and reminder levels high, it will do more for political accountability.
Parvez
Feb 10, 2013 12:25pm
Very nicely put. Our leaders political and military have become experts at keeping this country ' on the brink ' but not letting it go over....... to set this right, will circumstances force the issue or will the people wake up and do it ??
sri1ram
Feb 10, 2013 08:11am
Beautifully written last lines. Imminent collapse and unmanageable popular fury is the only mover for political leaders. This is not only true for Pakistan, it is equally true for ultra-complacent Indian leaders. Democracy is the only difference, that is slowly pushing Indian leaders to do the right thing. One place where Pak scroes big is - a very vigorous, expressive, substantive media not as beholden to special interests as in India. If this media (bothUrdu and English) can be persuaded to keep awareness and reminder levels high, it will do more for political accountability.
Amjad Wyne
Feb 10, 2013 01:47pm
Reform this and reform that can come later, Pakistan first needs political leaders that care about the country and have the capacity to govern. The nonsense of "conspiracy theories" to avoid accountability must end
Mohammad Ali Khan
Feb 11, 2013 02:44am
Three to 5 years we will have Martial law.
farmerdr
Feb 10, 2013 01:53pm
Cyril, once again you have defined very precisely the ills that ail Pakistan's politics. No individual alone can tackle these issues which affect our psyche at a National level and are unlikely to disappear any time soon short of a veritable revolution in attitudes. The only charismatic if highly bewildered leader marginally capable yet unlikely to lead this change appears to be IK. Capable and charismatic leaders like Aitzaz have become controversial and weak, others are capable but not charismatic. No national party leader including AZ and NS has the necessary qualities AND the support of a power base. The status quo ante is likely to remain as long as we continue to vote knaves and fools to be our masters or do not actively campaign against them otherwise as you predict they will inevitably lead us to disaster.
baig
Feb 10, 2013 02:12pm
I don't think situation is that much worst. Our politicians may not be ideally competent but they have recently done some unexpected things. Especially PML-N and PTI are the future prospects for Pakistan.
Silajit
Feb 10, 2013 02:58pm
Another option on the list of things to do to increase revenue is increasing the tax base by either increasing the tax rate or through the collection of taxes owed. The more people participate in government the more they will begin to expect from the government.
Dr Khan
Feb 10, 2013 04:28pm
So what do you want to convey and suggest? Really I am not that much smart to derive any conclusion from your article.
Md Imran
Feb 11, 2013 12:39pm
Question yourself why the islamic nations in ME or Africa did not suffer during recession unlike the west ? It is shariat way of doing business and banking. Implement real shariah in Pakistani economy, and then you'll see the growth as well as robustness.
S.A.Hyder.Ph.D.
Feb 10, 2013 09:10pm
In dictatorship corruption is the fault of the dictator. However, in democracy a corrupt government is entirely OUR OWN fault, especially when a government has shown in the past that it thrives on corruption. Why do we elect such career criminals? If we do not have any common sense, then the question is: Are we entitled to democracy? Can we sustain a successful democracy? A government that would sincerely work for the people rather than make people work for it? A government which would be accountable for its deeds? If we keep on electing the same character of players who have proven beyond any doubt their only claim to fame is their ability to suck the country dry, then who should be blamed? These characters or us? We can not blame them for fooling us for we have fooled ourselves!!!!!
Sudeep Kanjilal
Feb 10, 2013 08:40pm
Brilliant analysis. And scarily true for India too. Which is sad, as we have an eminent economist as our PM, who should know better. And, on top of that, our media has been completely prostituted. The English media more than the vernacular media.
pathanoo
Feb 10, 2013 07:25pm
Only the most corrupt, venal, heartless, have no conscience, brain dead politicians would not see the abyss staring them in the face. Only Pakistani politicians are capable of it.
Naveed Lotia
Feb 10, 2013 05:00pm
Brilliant and very precise....deperately needed reforms won't happen unless Pakistan's motely crew of Politicians & Military Generals are absolutely forced into it; human nature?
I. Ahmed
Feb 10, 2013 07:05am
Dear Cyril, are you advocating a care-taker set-up for 2 years? If you are, then you are right, but get ready to be ostracized by feudal-democratic lovers of Pakistan. And do you think the politicians and so-called economist in government care how far or close they are to help/destroy the country? They don't - this sham democratic process has never cared about country or people. Look where people and their families responsible for the fall of Dhaka are? Next elections, whenever they are held will bring another set of feudal minded, politically and economically bereft government (I am assuming it will be PML-N as per the Charter of Democracy - first your turn then my turn). The worst part of our life is that God doesn't seem to care about the poor people of Pakistan and even Swiss government is in no mood to provide us a ray of hope!!!!!